Conference Transcript - CLOV 2025-08-12

Richard Close, Analyst — Canaccord

Good morning. Thank you for attending our conference this year. I'm Richard Close. I cover digital and tech-enabled health at Canaccord. I'm excited to have Clover Health here again this year to update us on the company's progress. It's definitely come a long way over the last several years. From the company, we have CFO Peter Coopers here to go over the story. and then we'll go into a little bit of a Q&A fireside chat. If you have any questions, raise your hand, and we'll go from there. Peter, thanks.

Peter Kuipers, CFO

Thank you for having us, Richard. We're glad to be here at the Canaccord Growth Conference. We are a tech-enabled insurance company focused on Medicare Advantage that is actually growing amidst tough industry headwinds. From the start, our founders wanted to combine two things, deliver great clinical outcomes, one, and two, also have broad access for members for health care. This is pretty unique in the industry, we believe, and it's very rare in healthcare to be running a business that's both clinically and financially sound. And that is what we believe we have done. Yeah, clicker doesn't work. We'll just do it this way. Go to page two, please. So from an investment perspective, again, fairly unique solution that we offer. We're leading the technology, physician, we enable physicians at the point of care, at the time of care, which is really unique. Our technology platform called Clover Assistant is powered by machine learning and AI at the core, not in the back office. And it helps clinicians perform at the top of their license to earlier diagnose, treat diseases earlier, deliver better health outcomes for members, and over time, also lower cost and total cost of care. Medicare Advantage is a large market, around $500 billion annually. 35 million people in the U.S. are enrolled in Medicare Advantage. 40% of those are in PPO plans, roughly. We have a differentiated approach where we believe in wide access for members. So 97% of our members in Clover, our Clover members, are part of our PPO plans, which is a wide network, and the proprietary technology helps drive clinical outcomes and is also a differentiator in the market. From a growth perspective, we are growing 32% at the midpoint from a membership perspective for 2025 and 37% for the midpoint on revenue, which is very strong growth, especially in the MA market. While doing that, we're also maintaining and sustaining profitability with profitability on an adjusted EBITDA basis flat year over year comparing the first half of this year versus the first half of last year. Next slide. It doesn't work. Can you do it, please? Yeah, this one. Okay. All right, thank you. So, efficient from the get-go, from the start of the business, is to empower every physician with technology to identify, manage, and treat, especially chronic diseases, earlier. So earlier diagnoses, earlier treatments, better disease management, better clinical quality of care, and better health outcomes, and then also, of course, accessible care at lower total cost of care. And here's a snapshot, actually, of what the Clover Assistant technology looks like. This is the user interface that a physician uses at the point of care at the time of care. Our proprietary technology combines over 100 sources of medical records, virtually all EHR systems, all claims, almost all labs, all meds as well. And then our proprietary models synthesize this data to information and actually to clinical insights. Then helping during a visit for the PCP to provide better care and also care recommendation. The PCP, the clinician, makes the clinical decision, but we empower the physician to make better choices, more informed choices. Think about it that the PCP essentially has a thousand or thousands of second opinions, large data sets, better recommendations proven over time. Interesting summary slide here is that since we are at scale and have been operating our insurance plan at full risk, we do not have risk delegation in a traditional sense, and we are able to compare data sets of members that are covered by the software stack and compare to members that are not covered by the software. and we've issued a number of white papers that are publicly available on the number of chronic diseases that you see here. In general physicians using our software are able to earlier identify and treat chronic diseases. So diabetes, earlier diagnosis and earlier treatment, on average 36 months earlier, so that's three years earlier that treatment can start for better health outcomes. Quantic kidney disease, CKD stage 3, 18 months earlier on average. Chronic heart failure and COPD, also early diagnosis, but also very significant. The hospital hospitalizations and hospital readmissions are significantly lower. For CHF, 18% lower and 25% lower, and for COPD, 15% lower and 18% lower. And then also another testament to the quality of the clinical care, we have the highest HEDA score correlates to clinical quality. We have 4.94 stars out of five stars possible on the clinical measure for plants with 2,000 or more members. So very unique testament there. Here's the white paper on COPD. And you'll see the reduction in hospitalizations and then also readmissions, the 15% and 18%. Very significant reduction in inpatient admissions. Now, let's compare the business model, the differentiated business model. We have a Clover versus a traditional Medicare Advantage business model. First, we have a clinical approach, tech-enabled, at the point of care, at the time of care, that we talked about earlier, versus more traditional players and payers that are focused more on back office and administrative measures. The strategy is to identify disease earlier, treated earlier, for better health outcomes. So we are preventive on health care for the traditional players being reactive, back office oriented. Choice, choice in health care, very important. We offer a wide open network where members have choice of physicians in the PPO plan. Majority of other players approach a closed network, HMO network. Risk delegation, like we talked about earlier, we're not focused on risk delegation. We don't have risk delegation in a traditional sense. Traditional players have a lot of risk delegation. So very important to point out. And the important point there is that actually this is a proof point for the technology working because the P&L is a pure P&L. It shows full risk as well. Home care, we use the same technology in home care as well. and our home care teams are led by physicians, mostly MDs. From a cost perspective or BER perspective, we're industry-leading. Difficult to compare exact apples to apples, but we believe we're a couple hundred basis points lower as far as cost ratios. Then I think it's important to talk about the growth year over year. So 2024 was the first year that we established profitability on an adjusted EBITDA basis. We also had positive cash flow from operating activities in 2024 for around $84 million. Then going to 2025, 2025 was a growth year for us with a large cohort on new members. Again, 32% new members from 2024 to 2025. So that impacts actually gross profit. Those new members generally come at higher cost, if you will. But then our maturing cohorts, returning members, actually are incremental to gross profit as they mature. We do have some additional volume impact of serving more members on the variable SDNA side. And we'll also continue to invest in R&D and in quality. That net is offset also by an efficiency program that helps reduce cost. and on the SDNA side and create leverage. So net-net comparing EBITDA profitability in 24 to 25, given all these drivers, we are sustaining profitability while growing 32% members, which is very unique in the industry. Here you see the membership growth. So from 2024 to 2025, 32% membership growth. Very important on the right side, we issued earlier this year a cohort analysis, which shows the impact of earlier identification, earlier diagnoses, earlier treatment, and better health outcomes, and a lower total cost of care over time, where we compare the cohorts by year. A year two cohort of members has a 700 basis points, incremental or lower MCR, so higher gross profit. Another 800 basis points get added by year three. So this enables us actually to grow at a much above market rate where other players are actually retreating specifically in the PPO space. Now, we're focused on our core markets, which are New Jersey, Georgia, South Carolina, and Texas. We have ample growth, opportunity, runway, and momentum, we believe, for many years to come. If we look at the New Jersey market, if you look at all plants, we probably have around a 12% market share. So a lot of growth is to be had there, given our strength and momentum. In Georgia, I believe, there's a runway there also for a lot of momentum. But outside these four states, we want to bring this technology and better health outcomes to as many members in Medicare Advantage as possible. So in the middle of last year, we came to market, essentially providing, making this technology also available for third-party providers that bear risk and also to payers, both regional and national. We've announced a number of deals. We cannot announce every deal, if you will, but we offer this solution on a SaaS basis or on a per visit basis from a revenue model perspective by over 1,000 basis points. So we have a strong and compelling pipeline, and we continue to build momentum there. We're certainly busy here. Then looking at our opportunity, membership and revenue, we believe, will continue to grow in our prepared remarks for earnings last week. We believe that membership growth and revenue growth will accelerate from this year, Same accounts for profitability also. I'll talk in a minute about what we believe and see for 2026 profitability. We'll continue to execute, of course, on the quality side, counterpart, the third-party software offering to third parties. It has great momentum, and we'll expand that also, and then we'll continue to build on our Clover Assistant technology. Again, here is the strategic flywheel. Because we grow membership, because we get more usage of Clover Assistant technology, we deliver better outcomes from a clinical perspective, better health outcomes. That reduces total cost of care, and that then, again, enables us to reinvest the member benefits. and also technology. From a 25 perspective, from a guide perspective, we reconfirmed the guidance ranges for membership and revenue and EBITDA and adjusted net income as well. From a 2026 tailwind perspective, again, we believe that we will grow at the same rate from a membership perspective as this year or potentially higher. We're also going from a three-and-a-half payment year to a four-star payment year next year, which is significant from a financial perspective. We also have a compounding impact of the CMS final rate notice of about 9%, increased from 24 to 25. Also, the new members this year, that cohort will be a year-two cohort next year, And it will also have additional leverage from our cost efficiency initiatives that we've implemented. And then lastly, from a GAAP perspective, we issued an 8K yesterday pointing out that our stock-based comp expense, More than half of the expense from January 21 to January 26 is really consisting of founder-based awards from the IPO that are expensed over that period, and that expense will stop after January 26, and therefore we expect 2026 to have significantly lower stock-based comp expense. So, very important from a GAAP perspective.

Richard Close, Analyst — Canaccord

Yeah? So, Peter, maybe just hitting on the second quarter update last week, the stock, you know, did take a hit on the results. You've done a great job over the last two years versus every other managed care company in terms of controlling medical costs, benefit costs. Could you talk a little bit about the adjustment that you made on the benefit cost trend, the reason for it, and maybe why you're not concerned about that as you're thinking about 26?

Peter Kuipers, CFO

Yeah, I think the second quarter results came in beat expectations of the market, both on revenue and profitability. we pointed out some higher utilization in Part D which is a known unknown if you will because it's new for the industry we're managing that from a perspective that we are investing and we have additional capabilities in Clover Assistant as well to manage medications if you will med reconciliation and then of course identification of possibilities for generic meds as well another point on part d is that the direct subsidy from cms will increase by 40 percent to next year so we're working towards that if you will while we're executing to maintain and reduce the cost during 25 important to note part d the catastrophic reimbursement by government is off this year so it's new for for a lot of the ma plans so So we believe you can work through that as well. Yeah, so we're really looking forward to kind of continuing the trend to 26. On your question on the cost trends, at the core, Part C, cohort dynamics, as far as cost reductions and MCR perspective, they are trending in line to our expectations.

Richard Close, Analyst — Canaccord

Okay. And then anything to add on the supplemental, because you guys called that out as well. Do you make changes in terms of, you know, what you've put in for the benefits for the next, you know, benefit year, 2026?

Peter Kuipers, CFO

Yeah, we really can't talk about the benefits quite yet because AAP is coming up. But I would say for dental, we see more utilization there, which is actually good for members that are used. Of course, we're looking at infesting there as well and also deploying Clover Assistant technology also at dentists. So holistic approach from a technology perspective. And they're also looking more at network management also.

Richard Close, Analyst — Canaccord

Okay. And then with respect to next year, you did say that potential firm membership growth in the next AEP. How do you balance the growth with what's going on in the overall market in managed care with people exiting various markets? And just talk about that a little bit.

Peter Kuipers, CFO

Yeah, and that's a great question. From a go-to-market and growth perspective, we're laser-focused on growing. We have a strategy by county where we have the network of physicians using the software, and we also have a membership base, if you will, that coincides. So we're aiming to grow there and expand it. So think about it that way. And we want to be really precise in growth, like we've shown last AAP, and we believe we continue, and we can repeat that as well for this AAP.

Richard Close, Analyst — Canaccord

Is there anything different in the dynamics in New Jersey, what you've been able to do in New Jersey versus Georgia or Texas or South Carolina? Do you see those states, you know, eventually getting to the size of New Jersey?

Peter Kuipers, CFO

Yeah, New Jersey is certainly where we started, and that has, of course, the largest membership base and the largest PCP base using Clover system as well. And we see Georgia following after that, if you will, growing also to that maturity as far as network of members.

Richard Close, Analyst — Canaccord

And one thing is, obviously, with the medical cost trend performance that you've had over the last several years, introducing counterpart health as an avenue to bring that technology, I guess I would characterize it, to the masses, let's say. Do you ever envision that, like, breaking out the revenue from that just so we can see the performance of that? Obviously, it would be much smaller because I assume it's a, you know, SaaS licensed technology versus managed care. But can you just talk about how you think about that?

Peter Kuipers, CFO

Well, first of all, we're excited about the progress in Counterpart. counterpart certainly the the heat is aspects of the quality aspect that we talked about earlier resonates really well with both the risk bearing providers and with payers both regional and national so certainly we're certainly busy it's a significant opportunity we've got a strong pipeline at some point we will break out our revenue and provide some more metrics

Richard Close, Analyst — Canaccord

Okay. And then maybe just really to wrap up here over the last couple questions, the performance has been good while others have really stumbled. there's been a lot of changes with respect to managed care v28 and you maybe just go into a little bit deeper is it just the technology that has differentiated the company or enabled it to you know perform as you know or quote-unquote bucked the trend over the last couple years compared to everyone

Peter Kuipers, CFO

else yeah I think I think two things there so that one the technologies at its core clover system technology like talked about earlier combining all available medical data synthesizing that to information to actual insights to earlier diagnose and earlier treat diseases for better health outcomes and lower total cost of care that certainly is the main driver there and then I think secondly feet 28 our focus our founders have always focused on clinical care first which means that from a describing perspective we generally the our physicians don't necessarily have used descriptions that are now not applicable anymore of a v28 like the mild depression I believe in bruising we believe that in our health in our health plan that is a much lower occurrence and therefore we think that any headwinds are really the minimus from a 28 perspective and I believe we're in year two or year three now so okay we

Richard Close, Analyst — Canaccord

don't see any impact from that and then if we could slip one final one you did mention go into four stars for next year and how do we think about that in terms of does that like just drop down in terms of profit or you know how do we

Peter Kuipers, CFO

think about that yeah so the economics on a high level perspective moving up from a three-and-a-half-star payment year in 2025 to a four-star payment year in 2026. Adds around 5% in premium via bonus on the top line. Now, we haven't disclosed our benefits yet, so there might be some reinvestment in benefits as well. But certainly, it's a strong tailwind.

Richard Close, Analyst — Canaccord

Thanks for your time. I appreciate it. Appreciate it. Good to see you.

Peter Kuipers, CFO

Thanks for having us. Thank you.